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Nexeo Solutions Reports Second Quarter Fiscal Year 2017 Financial Results

Second Quarter 2017 Highlights (Versus Second Quarter 2016)

  • Revenue increased 6% to $918 million, driven by volume growth of 4% and strong price execution
  • Net loss for the quarter of $1 million, or $0.01 per share, included a $10 million non-cash charge related to the change in fair value of deferred consideration, compared to net income of $2 million in the prior year
  • Adjusted EBITDA increased over 10% to $46 million, from Adjusted EBITDA of $41 million in the prior year
  • Completed Ultra Chem acquisition and continued to organically expand specialty line-card with supplier wins

THE WOODLANDS, Texas, May 09, 2017 (GLOBE NEWSWIRE) -- Nexeo Solutions, Inc. (NASDAQ:NXEO) (the "Company" or "Nexeo Solutions"), today announced its consolidated financial results for the three months ended March 31, 2017.

"During the quarter we executed well on our plan, and most importantly, we returned to historical unit gross margins through strong price execution," said David Bradley, President and Chief Executive Officer of Nexeo Solutions. Mr. Bradley continued, "The Ultra Chem acquisition and continued momentum of supplier authorizations demonstrates our commitment to expand our specialty mix."

The Company reported sales and operating revenues of $917.7 million for the three months ended March 31, 2017 and $862.2 million for the three months ended March 31, 2016. The increase of $55.5 million or 6.4%, was primarily attributable to an increase in volumes across all segments of 4.0% due to increased demand through all geographic regions, except Asia, and an increase in overall average selling prices of 2.3% resulting from the inflationary price environment.  The revenue increase was partially offset by a decline of $5.2 million as a result of the weakening of the exchange rates of various currencies versus the U.S. dollar (USD) as compared to the same period in the prior fiscal year.  

Gross profit was $102.2 million for the three months ended March 31, 2017, and included charges totaling $1.8 million related to the additional depreciation expense from the purchase accounting adjustments in connection with the business combination.  Gross profit for the three months ended March 31, 2016 was $101.3 million. The increase in gross profit was primarily due to higher average selling prices and volumes as previously mentioned, and was partially offset by the additional depreciation expense previously mentioned as well as the impact of the weakening of exchange rates of various currencies versus the USD of approximately $0.4 million as compared to the same period in the prior fiscal year.

The Company reported a net loss of $1.1 million for the three months ended March 31, 2017, which included a $10.0 million non-cash charge related to the change in fair market value of the deferred consideration, as well as $3.1 million related to additional depreciation and amortization expense from the purchase accounting adjustments in connection with the business combination. The Company reported net income of $2.1 million for the three months ended March 31, 2016. Adjusted EBITDA was $45.7 million for the three months ended March 31, 2017 and $41.4 million for the three months ended March 31, 2016. For a description of Adjusted EBITDA and a reconciliation to its most comparable GAAP financial measure, please read "Non-GAAP Financial Measures".

Second Quarter 2017 Performance

The results of the Company's operating performance are described below and, unless otherwise indicated, are a comparison of the three months ended March 31, 2017 (Successor) with the three months ended March 31, 2016 (Predecessor).

  Successor     Predecessor        
  Three Months
Ended
March 31, 2017
    Three Months
Ended
March 31, 2016
  Period Over Period
Favorable (Unfavorable)
(in millions)       $ Change   % Change
Chemicals                
Sales and operating revenues           $ 415.0       $ 389.0     $ 26.0     6.7 %
Gross profit 50.6       50.1     0.5     1.0 %
Plastics                
Sales and operating revenues 471.7       443.9     27.8     6.3 %
Gross profit 45.8       44.8     1.0     2.2 %
Other                
Sales and operating revenues 31.0       29.3     1.7     5.8 %
Gross profit 5.8       6.4     (0.6 )   (9.4 )%
Consolidated                
Sales and operating revenues 917.7       862.2     55.5     6.4 %
Gross profit 102.2       101.3     0.9     0.9 %

Segment Highlights

Chemicals - Sales and operating revenues for the Chemicals line of business for the three months ended March 31, 2017 increased $26.0 million, or 6.7%. This revenue increase was primarily attributable to a 6.4% increase in average selling prices across multiple product lines as a result of the inflationary price environment.  Sales volumes remained steady through North America and decreased in Asia.

Gross profit for the Chemicals line of business for the three months ended March 31, 2017 increased $0.5 million, or 1.0%. Gross profit as a percentage of sales for the Chemicals line of business for the three months ended March 31, 2017 was 12.2% as compared to 12.9% for the three months ended March 31, 2016.  The decrease was driven by additional depreciation expense of approximately $1.3 million during the current period primarily due to the step up in fair value of property, plant and equipment as a result of the business combination.

Plastics - Sales and operating revenues for the Plastics line of business for the three months ended March 31, 2017 increased $27.8 million, or 6.3%. The revenue increase was primarily attributable to an 8.6% increase in volumes across all of our operating regions as a result of increased demand in North America and market expansion in EMEA and was partially offset by a 2.1% decrease in overall average selling prices as well as a decrease of $5.4 million as a result of the weakening of the exchange rates of various currencies versus the USD compared to the same period in the prior fiscal year.  Revenues continued to be affected in North America due to a supplier disruption which resulted in limited availability to us of certain products we distribute on a regular basis.

Gross profit for the Plastics line of business for the three months ended March 31, 2017 increased $1.0 million, or 2.2%. Gross profit as a percentage of sales for the Plastics line of business for the three months ended March 31, 2017 was 9.7% as compared to 10.1% for the three months ended March 31, 2016.  The decrease was driven by the impact of the weakening of the exchange rates of various currencies versus the USD of $0.4 million as compared to the same period in the prior fiscal year.  There was also additional depreciation expense of approximately $0.5 million during the current period affecting gross profit due to the step up in fair value of the property, plant and equipment as a result of the business combination.  Finally, a portion of the decrease was driven by a supplier disruption in North America resulting in limited availability to us of certain products we distribute on a regular basis.

Other - Sales and operating revenues for the Other segment for the three months ended March 31, 2017 increased $1.7 million, or 5.8%, as compared to the three months ended March 31, 2016.  The increase in revenues was primarily due to price increases during the current quarter.

Gross profit declined $0.6 million, or 9.4%, for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016.  Gross profit as a percentage of sales for the Other segment for the three months ended March 31, 2017 was 18.7% as compared to 21.8% for the three months ended March 31, 2016.  The decrease in gross profit was primarily due to a shift in service mix toward on-site services during the period as compared to the same period in the prior fiscal year.

Nexeo Solutions to Hold Earnings Conference Call

The Company will hold a conference call to discuss its second quarter fiscal year 2017 earnings on Wednesday, May 10, 2017 at 9:00 a.m. CT (10:00 a.m. ET). To participate in the conference call by telephone, please call one of the following telephone numbers and reference the below access passcode 10 minutes prior to the scheduled start time:

  • Domestic: +1.844.412.1004
  • International: +1.216.562.0451
  • Passcode: 16639779

The conference call and presentation will also be broadcast live via the Internet. You may listen by accessing the Investor Relations section of the Company's website at www.nexeosolutions.com. You should connect to the website at least 15 minutes prior to the conference call to register, download and install any necessary audio software to ensure a successful user experience.

If you are unable to participate, a replay of the conference call will be available on May 10, 2017, beginning at 12:00 p.m. CT (1:00 p.m. ET), through May 17, 2017 at 12:00 p.m. CT (1:00 p.m. ET). The phone number for the conference call replay is +1.855.859.2056 (Domestic) or +1.404.537.3406 (International). The access passcode is 16639779. Additionally, the recorded conference call will be accessible through the Investor Relations section of the Company’s website at www.nexeosolutions.com.

All individuals listening to the conference call or the replay are reminded that all conference call material is copyrighted by the Company and cannot be recorded or rebroadcast without the Company's expressed written consent.

Basis of Presentation

As a result of the business combination, the Company was identified as the acquirer for accounting purposes, and the historical operations of Nexeo Solutions Holdings, LLC and its subsidiaries was deemed to be the accounting predecessor. The business combination was accounted for using the acquisition method of accounting and the Successor financial statements reflect a new basis of accounting for the assets and liabilities of the acquired company that is based on the fair value of net assets acquired and liabilities assumed. As a result of the application of the acquisition method of accounting, the condensed consolidated financial statements for the Predecessor period and for the Successor period are presented on a different basis and are, therefore, not directly comparable without certain adjustments.

Non-GAAP Financial Measures

Certain financial measures presented herein, including EBITDA, Adjusted EBITDA and Net Debt were derived based on methodologies other than in accordance with generally accepted accounting principles in the United States ("GAAP"). The Company’s management has included these measures because they believe they are indicative of the Company’s operating performance, are used by investors and analysts to evaluate the Company and can facilitate comparisons across periods. As presented by the Company’s management, these measures may not be comparable to similarly titled measures reported by other companies. EBITDA, Adjusted EBITDA and Net Debt should be considered in addition to, not as substitutes for, financial measures presented in accordance with GAAP. Moreover, certain non-GAAP financial measures as presented for financial reporting purposes herein may differ from similarly titled measures in the applicable covenants in our credit facilities.

The Company evaluates performance on the basis of Adjusted EBITDA, which it defines as its consolidated net income (loss), plus the sum of interest expense, net of interest income, income tax expense (benefit), depreciation, amortization, other operating expenses, net (which primarily consists of acquisition and integration-related expenses, employee stock-based compensation expense and other restructuring and transformational expenses), impairment charges, loss on extinguishment of debt and other income (expense), net, gains and losses on foreign currency transactions, debt refinancing costs and other non-operating activity. Management believes that Adjusted EBITDA is indicative of the Company’s operating performance and that it is used by investors and analysts to evaluate companies with similar capital structures. The Company believes that Adjusted EBITDA is an important indicator of operating performance because:

  • Adjusted EBITDA excludes the effects of income taxes, as well as the effects of financing and investing activities by eliminating the effects of interest, depreciation and amortization;
  • the Company uses Adjusted EBITDA in setting performance incentive targets;
  • the Company considers gains (losses) on the acquisition, disposal and impairment of assets as resulting from investing decisions rather than ongoing operations; and
  • other significant one-time items, while periodically affecting the Company's results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of its results.

A reconciliation of Adjusted EBITDA to Net Income (Loss) Attributable to Nexeo Solutions, Inc. and Subsidiaries, the most comparable GAAP financial measure, is included at the end of this release.

About Nexeo Solutions, Inc.

Nexeo Solutions is a leading global chemicals and plastics distributor, representing products from world-class producers to a diverse customer base. From product specification to sustainable solutions, the Company goes beyond traditional logistics to provide value-added services across many industries, including chemicals manufacturing, oil and gas, coatings, personal care, healthcare, automotive and 3D printing. The Company leverages a centralized technology platform to identify efficiencies and create solutions to unlock value for suppliers and customers. Learn more at www.nexeosolutions.com.

Forward-Looking Statements

This press release contains statements related to the Company’s future plans and expectations and, as such, includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are those statements that are based upon management’s current plans and expectations as opposed to historical and current facts and are often identified in this press release by use of words including but not limited to “may,” “believe,” “will,” “project,” “expect,” “estimate,” “anticipate,” and “plan.” Although the forward-looking statements contained in this press release reflect management’s current assumptions based upon information currently available to management and based upon that which management believes to be reasonable assumptions, the Company cannot be certain that actual results will be consistent with these forward-looking statements. Forward-looking statements necessarily involve significant known and unknown risks, assumptions and uncertainties that may cause the Company’s actual results, performance prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: the Company’s ability to achieve projected cost savings; consolidation of the Company’s competitors; increased costs of products the Company purchases and its ability to pass on cost increases to its customers; disruptions to the supply of chemicals and plastics that the Company distributes or in the operations of the Company’s customers; the Company’s significant working capital requirements and the risks associated with maintaining large inventories; any disruptions to the Company’s ERP system; the Company’s ability to meet the demands of the Company’s customers on a timely basis; risks and costs related with operating as a stand-alone company; risks related to the Company’s supplier and customer contracts; risks related to the Company’s substantial indebtedness; changes in state, federal or foreign laws affecting the industries in which we operate; the Company’s ability to comply with any new and existing environmental and other laws and regulations; and general business and economic trends in the United States and other countries, including uncertainty as to changes and trends. The Company's future results will depend upon various other risks and uncertainties, including the risks and uncertainties discussed in the Company's SEC filings, including in the sections entitled “Risk Factors” in such SEC filings.

 
Nexeo Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in millions, except share amounts and par value)
 
  March
31, 2017
  September
30, 2016
Current Assets      
Cash and cash equivalents $ 95.3     $ 47.5  
Accounts and notes receivable (net of allowance for doubtful accounts of $1.4 million and $1.4 million, respectively) 540.4     474.8  
Inventories 336.4     315.8  
Other current assets 23.8     25.7  
Total current assets 995.9     863.8  
       
Non-Current Assets      
Property, plant and equipment, net 327.3     322.6  
Goodwill 661.0     665.7  
Other intangible assets, net of amortization 211.2     215.0  
Deferred income taxes

1.6     1.1  
Other non-current assets 10.9     10.7  
Total non-current assets 1,212.0     1,215.1  
Total Assets $ 2,207.9     $ 2,078.9  
       
Current Liabilities      
Short-term borrowings, current portion of long-term debt and capital lease obligations $ 47.1     $ 47.7  
Accounts payable 353.3     325.8  
Accrued expenses and other liabilities 37.6     45.7  
Due to related party pursuant to contingent consideration obligations 5.1      
Income taxes payable 2.3     2.0  
Total current liabilities 445.4     421.2  
       
Non-Current Liabilities      
Long-term debt and capital lease obligations, less current portion, net 871.3     765.6  
Deferred income taxes 16.4     23.1  
Due to related party pursuant to contingent consideration obligations 135.9     118.4  
Other non-current liabilities 7.5     5.8  
Total non-current liabilities 1,031.1     912.9  
Total Liabilities 1,476.5     1,334.1  
       
Commitments and contingencies      
       
Equity      
Preferred stock, $0.0001 par value (1,000,000 shares authorized, none issued and outstanding as of March 31, 2017 and September 30, 2016)      
Common stock, $0.0001 par value (300,000,000 shares authorized; 89,276,183 shares issued and outstanding as of March 31, 2017 and 89,286,936 shares issued and outstanding as of September 30, 2016)      
Additional paid-in capital 761.6     758.9  
Accumulated deficit (19.0 )   (9.6 )
Accumulated other comprehensive loss (11.2 )   (4.5 )
Total equity 731.4     744.8  
Total Liabilities and Equity $ 2,207.9     $ 2,078.9  


 
Nexeo Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited, in millions, except share and per share data)
 
  Successor     Predecessor
  Three Months
Ended
March 31,
2017
  Six Months
Ended
 March 31,
2017
    Three Months
Ended
 March 31,
2016
  Six Months
Ended
 March 31,
2016
Sales and operating revenues $ 917.7     $ 1,712.5       $ 862.2     $ 1,689.9  
Cost of sales and operating expenses 815.5     1,525.9       760.9     1,493.4  
Gross profit 102.2     186.6       101.3     196.5  
Selling, general and administrative expenses 80.0     154.5       76.7     151.4  
Transaction related costs 0.3     1.1       6.3     7.3  
Change in fair value of contingent consideration obligations 10.0     20.6            
Operating income 11.9     10.4       18.3     37.8  
Other income, net 0.2     2.6       0.9     2.6  
Interest income (expense)                
Interest income 0.1     0.2       0.1     0.1  
Interest expense (12.5 )   (24.5 )     (15.5 )   (31.1 )
Net income (loss) from continuing operations before income taxes     (0.3 )   (11.3 )     3.8     9.4  
Income tax expense (benefit) 0.8     (1.9 )     1.8     3.1  
Net income (loss) from continuing operations (1.1 )   (9.4 )     2.0     6.3  
Net income from discontinued operations, net of tax           0.1     0.1  
Net Income (Loss) Attributable to Nexeo Solutions, Inc. $ (1.1 )   $ (9.4 )     $ 2.1     $ 6.4  
                 
Net loss per share available to common stockholders                
  Basic and diluted (0.01 )   (0.12 )          
Weighted average number of common shares outstanding                
  Basic and diluted 76,746,168     76,746,168            


 
Nexeo Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in millions)
 
  Successor     Predecessor
  Six Months Ended
 March 31, 2017
    Six Months Ended
 March 31, 2016
Cash flows from operations        
Net income (loss) from continuing operations $ (9.4 )     $ 6.3  
Adjustments to reconcile to cash flows from operations:        
Depreciation and amortization 34.6       27.4  
Debt issuance costs amortization, debt issuance costs write-offs and original issue discount amortization     2.0       4.4  
Provision for bad debt (0.1 )     1.1  
Deferred income taxes (5.6 )     0.9  
Equity-based compensation expense 2.7       0.6  
Change in fair value of contingent consideration obligations 20.6        
(Gain)/loss on sale of property and equipment 0.1       (1.9 )
Gain on debt extinguishment, net       (0.6 )
Gain related to reimbursements of certain capital expenditures incurred (2.7 )      
Changes in assets and liabilities:        
Accounts and notes receivable (70.4 )     20.7  
Inventories (23.7 )     6.3  
Other current assets 1.9       (3.7 )
Accounts payable 33.8       (3.7 )
Related party payable       (0.2 )
Accrued expenses and other liabilities (10.6 )     (10.7 )
Changes in other operating assets and liabilities, net 0.9       (3.3 )
Net cash provided by (used in) operating activities (25.9 )     43.6  
Cash flows from investing activities        
Additions to property and equipment (14.5 )     (9.4 )
Proceeds from the disposal of property and equipment 0.1       2.0  
Proceeds from reimbursement of certain capital expenditures incurred 2.9        
Cash paid for acquisitions (5.1 )      
Net cash used in investing activities (16.6 )     (7.4 )
Cash flows from financing activities        
Repurchases of membership units       (0.1 )
Proceeds from short-term debt 19.5       18.6  
Repayments of short-term debt (19.1 )     (15.0 )
Proceeds from issuance of long-term debt 385.5       207.3  
Repayments of long-term debt and capital lease obligations (293.6 )     (314.7 )
Payments of debt issuance costs (1.3 )      
Net cash provided by (used in) financing activities 91.0       (103.9 )
Effect of exchange rate changes on cash and cash equivalents (0.7 )     (0.3 )
Increase (decrease) in cash and cash equivalents 47.8       (68.0 )
Cash and cash equivalents at the beginning of the period 47.5       127.7  
Cash and cash equivalents at the end of the period $ 95.3       $ 59.7  
Supplemental disclosure of cash flow information:        
Cash paid during the period for interest $ 24.7       $ 26.4  
Cash paid during the period for taxes $ 2.6       $ 2.9  
Supplemental disclosure of non-cash investing activities:        
Non-cash capital expenditures $ 15.8       $ 15.8  
Non-cash intangible assets acquired $ 3.4       $  
Supplemental disclosure of non-cash financing activities:        
Non-cash capital lease obligations, net $ 13.4       $ 13.8  


 
Nexeo Solutions, Inc. and Subsidiaries
Segment Information
(Unaudited, in millions)
 
  Successor     Predecessor
  Three Months Ended
 March 31, 2017
    Three Months Ended
 March 31, 2016
Chemicals        
Sales and operating revenues     $ 415.0       $ 389.0  
Gross profit 50.6       50.1  
Plastics        
Sales and operating revenues 471.7       443.9  
Gross profit 45.8       44.8  
Other        
Sales and operating revenues 31.0       29.3  
Gross profit 5.8       6.4  
Consolidated        
Sales and operating revenues 917.7       862.2  
Gross profit 102.2       101.3  


 
Nexeo Solutions, Inc. and Subsidiaries
Adjusted EBITDA Reconciliation
(Unaudited, in millions)
 
    Successor     Predecessor
    Three Months Ended
 March 31, 2017
    Three Months Ended
 March 31, 2016
Net income (loss)   $ (1.1 )     $ 2.1  
Net (income) loss from discontinued operations             (0.1 )
Interest expense, net   12.4       15.4  
Income tax expense (benefit)   0.8       1.8  
Depreciation and amortization   17.8       13.8  
Other operating expenses, net (1)   15.8       8.4  
Adjusted EBITDA from continuing operations   $ 45.7       $ 41.4  

(1) See Other Operating Expenses, Net table for additional detail

 
Nexeo Solutions, Inc. and Subsidiaries
Other Operating Expenses, Net
(Unaudited, in millions)
 
    Successor     Predecessor
    Three Months Ended
 March 31, 2017
    Three Months Ended
 March 31, 2016
Management add-backs (1)   $ 3.4       $ 1.3  
Change in fair value of contingent consideration obligations   10.0        
Foreign exchange (gains) losses, net (2)   0.8       (0.3 )
Management fees (3)         0.8  
Compensation expense related to management equity plan (non-cash)       1.3       0.3  
Transaction and other transaction related costs (4)   0.3       6.3  
Other operating expenses, net   $ 15.8       $ 8.4  

(1) One-time management adjustments associated with integration, restructuring and transformational activities not directly related to the business combination
(2) Includes the impact of net realized and unrealized foreign exchange gains and losses related to transactions in currencies other than the functional currency of the respective legal entity for the purpose of evaluating the Company's performance and facilitate more meaningful comparisons of performance to other fiscal periods
(3) Management, monitoring, consulting, reimbursable fees and leverage fees, per the agreement with TPG Capital, L.P.;  In connection with the business combination, this agreement was terminated
(4) Includes professional and transaction costs related to acquisitions, potential acquisitions and other business combination related items

FOR FURTHER INFORMATION PLEASE CONTACT

Investor Relations, Nexeo Solutions
Tel: +1.281.297.0856, Investor.Relations@nexeosolutions.com

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Nexeo Stock

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